Low Churn Underscores Weakness of the Labor Market

The May Job Openings and Labor Turnover Survey (JOLTS) released this morning by the Bureau of Labor Statistics provides an important picture of economic health (or lack thereof) in key areas, including:

Churn in the labor market

The JOLTS data are a regular reminder that there is always a great deal of “churn” in the labor market. When we learn, as we did last Friday, that the labor market added 195,000 jobs in June, it is important to remember that this is a net change, which masks a lot of shuffling. The 195,000 jobs added in June is likely the result of around 4.4 million people being hired and 4.2 million people either leaving their jobs voluntarily or being laid off.

When the labor market is stronger, there is much more churn. For example, in 2006 and 2007, there were 5.3 million people being hired and 5.1 million people separating from their jobs (i.e., leaving their jobs or being fired) each month on average.

The reason there is less churn today is that jobs are so scarce that employed workers are much less likely to quit the job they have. In 2006 and 2007, nearly 3 million workers voluntarily quit their jobs each month. That dropped to a low of 1.6 million in September 2009. It has since increased somewhat, but is still extremely low. In May, 2.2 million workers voluntarily quit their jobs, basically unchanged from April (up 18,000). Because leaving a job for a better opportunity can be an important way for workers to advance, this persistent depressed rate of voluntary quits represents millions of lost opportunities.

Job opportunities and low demand

The “hires rate”—the number of hires as a percent of total employment—is an important measure of the strength of job opportunities. In May, 3.3 percent of all jobs were new hires, representing 4.4 million hires, a small increase (+46,000) from April. This is an improvement from the low in June 2009 of 2.8 percent (3.6 million new hires), but still far below the 3.8 percent (5.3 million new hires) per month in 2006 and 2007.

Job openings were essentially unchanged in May, increasing by 28,000 to 3.8 million. Job openings have improved very little over the last year and remain depressed. In 2006 and 2007, there were 4.5 million job openings each month, so May’s level of 3.8 million is more than 14 percent below its prerecession level.

The job openings data are extremely useful for diagnosing what’s behind our sustained high unemployment. In today’s economy, unemployed workers far outnumber job openings in every major sector, as shown in the figure below. This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings.

In May, the number of job seekers, which increased by 101,000 from April, was 11.8 million (unemployment data are from the Current Population Survey and can be found here). The “job-seekers ratio”—the ratio of unemployed workers to job openings—was unchanged in May at 3.1-to-1. The ratio has been 3.0-to-1 or greater since October 2008, more than four-and-a-half years ago. A job-seekers ratio above 3-to-1 means there are no jobs for more than two out of three unemployed workers. To put today’s ratio of 3.1-to-1 in perspective, the highest the ratio ever got in the early 2000s downturn was 2.9-to-1 in September 2003. In a labor market with strong job opportunities, the ratio would be close to 1-to-1, as it was in December 2000 (when it was 1.1-to-1).

Research assistance by Natalie Sabadish, Hilary Wething, and Will Kimball